While one data point does not constitute a trend, a first page article in today’s New York Times, “Creators of Credit Crisis Revel in Las Vegas,” may signal a shift in popular sentiment. Normally, “how the mighty are fallen” stories are exercises in shadenfreude. But this one, on the annual convention of the American Securitization […]
Read more...Bill Gross, founder of bond investing giant Pimco, has almost no kind words for the bond insurance industry in a comment in the Financial Times, “Rescuing monolines is not a long-term solution.” He views a salvage operation for the industry as at best a stopgap to prevent a crisis in the so-called shadow banking system. […]
Read more...Deutsche Bank’s CEO Josef Ackermann issued a stark warning today: bond insurer downgrades would have catastrophic consequences, on par with the subprime crisis. Note tha this view is in contrast with teh comparatively sanguine readings that have been coming from some US analysts and the US media, which now appears to regard teh increasing possibility […]
Read more...Standard & Poor’s is to announce some measures today in an effort to bolster its damaged reputation. These moves seem a bit late in coming, given the firestorm of well-deserved criticism aimed at rating agencies. Indeed, the timing is a bit sus, as they would say in Australia, coming only as international regulators are considering […]
Read more...The Wall Street Journal today says that even if the efforts to raise new funding for the troubled bond insurers are successful, they are unlikely to stave off a ratings downgrade. This story, based in part on reports coming from the rescue discussions led by New York state insurance superintendent Eric Dinallo, indicates that the […]
Read more...Bloomberg and the Telegraph report on a speech made by Warren Buffett in Toronto. He sees the dollar falling over the next decade unless policies change, has harsh words for the financial services industry, and says there is plenty of credit available. The last bit sounds troublingly at odds with facts, until you realize he […]
Read more...While this move by MBIA to increase equity and reserves is hardly adequate to preserve an AAA based on what that rating is supposed to mean, the rating agencies, despite their posturing otherwise, are desperate to avoid downgrading MBIA and Ambac,. This fig leaf may be deemed to be adequate, at least for the next […]
Read more...Although it’s merely talk at this point, international regulators are considering how to reform rating agencies’ role in structured finance, which in hindsight contributed to many parties buying paper that was considerably riskier than they realized, One notion is to limit their their role in advising issuers on the design of structured finance products, which […]
Read more...A very good, accessible article, “CDS market may create added risks,” by Satayjit Das appears in today’s Financial Times. We’ve sometimes discussed the fact that credit default swaps, which effectively are insurance policies against defaults, suffer from considerable counterparty risk. A policy is only as good as the entity that wrote it, and many of […]
Read more...As many reader likely know, the Markit CMBX indices are commercial real estate mortgage-backed securities default indexes, However, unlike the more familiar subprime indexes, the ABX, which is based on bond prices (so down is bad), the CMBX is based on spreads. When spreads go up, bond prices go down, so for the CMBX, up […]
Read more...In today’s post, “The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster,” the bearish and prescient professor Nouriel Roubini sets forth how a systemic financial crisis could play out. The most troubling thing about this piece is that it is quite plausible. Of Roubini’s twelve steps, the first eight are […]
Read more...Standard & Poor’s issued a research report today that stresses that bond insurer downgrades would hurt banks and in some cases could lead to reductions of their debt ratings. This report is in contrast to the comparatively cheery view of Morgan Stanley yesterday, that bond guarantor downgrades (presumably to AA; note further downgrades are possible) […]
Read more...Bloomberg reports that CDO trading has ground to a virtual halt, which isn’t surprising given the number of pending downgrades and the propensity for CDOs to be downgraded by multiple notchhes. From Bloomberg: Buying and selling of collateralized debt obligations based on mortgage bonds, high-yield loans or preferred shares has ground to a near-halt, traders […]
Read more...Th announcement by Fitch of tis intent to downgrade as much as $220 billion of CDOs is in keeping with an announcement by Standard & Poor’s of its plans to downgrade or put on review up to $534 billion of CDOs. Both are the result of new, more negative default assumptions in the underlying assets. […]
Read more...The bond insurer front was quiet, with the only major news item the release of a report by Morgan Stanley’s credit analyst that argues that bank losses from a bond insurer downgrade would be only $5 to $7 billion, and it therefore isn’t worth their while to stump up for a rescue. At this point, […]
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